US regionals face uncertain future.(REGIONALS)

AFTER A DECADE OF robust growth and financial success, US regional airlines are facing a challenging future as they deal with aging fleets of 50-seat jets that are increasingly expensive to operate at today's record fuel prices, pilot shortages, potential consolidation of their mainline partners and slowing demand for their services. Last year, mainline domestic RPM growth outpaced regional carrier growth for the first time since 1995, according to FAA's "Aerospace Forecast 2008-2025." Mainline domestic ASMs grew 1.8% against a 0.5% rise in regional ASMs.

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"This is a time to hunker down and run the tightest ship you can in preparation for whatever comes down the road," suggests Doug Abbey, a senior VP at Seabury Investment Group.

"You have to make sure you are a high-quality, safe, clean and reliable provider," says Republic Airways President and CEO Bryan Bedford, chairman of the Regional Airline Assn. (Republic was named ATW's Regional Airline of the Year in February). "There will be a sorting out process where people who don't fit that mold will be under more pressure."

Adding to the uncertain mood is the proposed merger between Delta Air Lines and Northwest Airlines, which between them are served by several regional partners.

Last year's modest regional traffic and capacity growth was a far cry from the steep trajectory achieved by the segment since 2000. Between 2000 and 2007, regional domestic capacity grew at a compound annual average rate of 13.5% while mainline capacity declined by 0.6% annually. Over the same period, regional traffic rose an average of 17.4% per year against a paltry 1.1% for mainline carriers.

But those days are over, according to FAA. The agency expects regional RPMs to grow 2.9% this year on a 2.5% gain in capacity "as increasing numbers of 70- and 90-seat regional jets enter service, while the number of smaller regional jets shrinks. …

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